CLIMATE FINANCE 101: WHAT IS A GREEN BANK?

Green banks fill an important state and community level need for clean energy and efficiency funding
to bridge the gap and make green opportunities more appealing to both individuals and investors.

With the world growing warmer and each year breaking new heat records, urgent
action to end the climate crisis cannot wait. It’s our responsibility to do everything we
can to prevent the worst of it.
Every person and every community has a right to breathe clean air, live free from thethreat of toxic pollution, access healthy food, and be part of the prosperous clean
energy economy of tomorrow.
Getting there is going to require everything we’ve got. This is a unique moment ofpossibility, one where we have the chance to think big and act boldly.
One important piece of the puzzle is finance. How are we going to fund the transition
to a better, more sustainable climate future?
Governments the world over have been asking themselves this very question,
debating the means of paying for large-scale climate adaptation and mitigation andfor the loss and damage already created by the climate crisis.
But what about at the state or even community level? Global climate financediscussions can feel very far away from what’s happening just a few blocks away on
Main Street.
This is often where “green banks” enter the equation.
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WHAT IS A GREEN BANK?
“Green banks are mission-driven institutions that use innovative financing toaccelerate the transition to clean energy and fight climate change,” according to theCoalition for Green Capital.
They are typically public or quasi-public, meaning they are most often establishedby governments or government-affiliated programs, though they can also be founded
as independent non-profit entities.
When we say they are “mission-driven,” we mean that they “have a mandate toadvance the deployment of clean energy,” according to the US Environmental
Protection Agency (EPA), rather than an imperative to maximize profit like a
conventional bank.
Green banks use a variety of financial tools, such as loans and bonds, to make clean
energy projects more affordable and appealing to investors.
They work by providing loans and using the revenue from loans being paid back tomake even more investments — sort of like a snowball rolling down a hill, getting
bigger and bigger as it picks up more and more of the white stuff.
Green banks are also an effective tool for mobilizing private investment. In this way,
they can help to overcome the financial barriers that often prevent clean energy
projects from being developed.
“By focusing on underserved market sectors, green banks can complement existingclean energy programs by targeting market gaps. They can address existing barriers
that otherwise prevent the expansion of clean energy, particularly within underservedcommunities,” the EPA writes. “Many green banks have tailored their programs toimprove access to clean energy projects for low- and moderate-income (LMI)
communities.”

WHERE DOES THE MONEY COME FROM?
Funding for green banks can vary dramatically from bank to bank, depending on its
formation, mission, structure, and goals, though in most cases it comes from a diversemix of public and private sources.

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“Depending on the state, green banks can access public funding, raise capital inprivate markets, and/or receive a steady stream of revenue through utility billsurcharges,” the National Renewable Energy Laboratory says.
Local and state governments can allocate funds directly to establish and underwrite
a green bank. This governmental funding often comes via the legislation establishing
the bank itself, and can be a one-time appropriation or ongoing support over time froma varied source of revenue streams.
As mentioned above, in some instances, utility bills can include a small ratepayer
surcharge specifically dedicated to funding a green bank.
There are also a variety of private funding sources that green banks can turn to.
Philanthropic and other environmentally minded non-profit organizations can provide
money to launch or support a green bank and its initiatives, and an established bankcan issue bonds to raise capital from private investors who support the bank’senvironmental goals, while also seeking a return on their investment.
Partnerships with private lenders like commercial banks and other financial institutions
can also provide access to additional startup capital.
And of course, once a green bank is up and running, repayments on loans and othersuccessful investments begin to flow in and that capital is repurposed to support newprojects.
Once it’s off the ground, this revolving capital approach allows a green bank tomaximize its impact even when its initial resources were limited.

BENEFITS OF GREEN BANKS
The potential for positive impacts across environmental, economic, and social sectors
make green banks valuable tools for building more sustainable and resilient
communities.
Using limited public funding to attract private investment in clean energy, energyefficient housing, and other green projects, green banks make green projects more
affordable and accessible, which ultimately grows the market for more and more clean
energy projects.

3They can be particularly beneficial to historically underserved communities, including
low- and moderate-income (LMI) communities and communities of color.
Green banks’ mission-driven approach allows them to prioritize investments inunderserved communities, ensuring fair access to clean energy solutions andaddressing the unique energy burdens faced by LMI households.
At the same time, investments in things like flood mitigation and energy-efficient
infrastructure can increase community resilience to the extreme weather impacts
we’re already seeing as temperatures continue to rise and our climate changes.
And there are, of course, environmental benefits to green banks’ mission-driven focus
on clean energy.
By financing clean energy projects, green banks help communities move away fromthe fossil fuels driving the climate crisis. This leads to cleaner air and water in the
short and long-term, benefitting public health and reducing the health-care costs
associated with ongoing environmental degradation.
Green banks’ ultimate goal is to work to help reduce greenhouse gas emissions andmitigate the climate crisis. But for the average Joe, their bottom line looks even better.
Green banks can help communities lower energy bills by funding energy efficiency
measures and renewable energy generation, saving individual households andbusinesses money.
They can also help to attract new businesses and green investment to aregion, bolstering the local economy. The clean energy sector is a growing job
market, and by investing in associated projects, green banks can assist in the creationof many new jobs in communities just like yours.
Overall, green banks are a powerful tool for promoting clean energy investment andhelping communities see very real and equitable growth – and they can play a key rolein advancing the transition to a low-carbon economy.

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LEARN MORE
There’s no getting around it: The changes we’re talking about are an investment. In
infrastructure. In communities. In new technologies. In efficiency measures. And somuch more.
But this investment is also one that could pay impressive dividends for individuals of
every social class, color, gender, and creed.
It has the potential to lift us all up together.
And green banks are just one piece of the puzzle of how we get there.

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